It sounds great in an action movie: “This is no time to panic!” But… is it ever a good time to panic? Sounds like a lot of work, anyway. 😊
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buy low sell high
Selling Out Is a One-Way Ticket
As we know, the markets go up and down. It’s just part of the deal! But sometimes the peaks and drops can get a little intense, so it’s worth revisiting this reality once in a while.
The most mindful long-term investors are usually less alarmed by the bumps along the way. They know what they’ve got is basically a lifetime pass on a rollercoaster. But it’s the ride to greater potential returns, so they can keep the thrills in perspective.
What would the alternative be, in our rollercoaster example? If you get spooked on a big drop, there’s no abandoning your seat. “Please keep your hands, arms, feet, and legs inside the vehicle while on this ride,” the announcement cautions.
It’s best to stay in your seat, your best chance to get to the end of the ride in one piece.
As long-term investors, we know that we can afford to let each cycle just run its course. Jumping off the ride partway through sets us up for more trouble and more work than it would ever be worth: how would we know when it’s best to jump back on? How do we know that we’ll be able to jump safely?
We hope this is context enough to allow us to be blunt with you: long-term investing is a ticket for the whole ride, whatever that may mean.
Selling out? Selling out is a one-way ticket out of our shop.
Your resources are your business. Where you park your wealth is your decision, completely, and each one of us needs to do what is best for them.
But we choose to keep at it for those who are thinking about the long haul. We believe it’s the most effective approach to a lifetime of financial wellbeing—and whatever legacy might stretch beyond your lifetime!
Clients, we strive to communicate our values and intentions clearly. Do you need to clarify anything with us? Call or write, anytime.
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Selling Out Is a One-Way Ticket – 228Main.com Presents: The Best of Leibman Financial Services
This text is available at https://www.228Main.com/.
Swimming Upstream
Research Team Q&A: Challenges and Opportunities in Rough Markets
Clients, what do we do when things get so churned up in the markets? We go bargain hunting, of course! In this special message, the team talks bargains, the long view, and keeping the faith through a downturn. Reach out with questions, anytime.
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Why Don’t We Just Pull Back?
Clients sometimes ask why we don’t just pull back when the market starts going down.
It is a fair question. We are thinking about a number of things in formulating investment strategy and tactics:
- The average decline in the course of a calendar year in the major market averages is about 13% (per Standard & Poor’s 500 Index, S&P Dow Jones Indices). Basically, the market is always going down—and up.
- A wag once noted that the market has predicted nine of the last five recessions. In other words, it may decline 10 or 20% without signifying anything about the health of the economy.
- The times when it seems to make the most sense to sell out often turn out to be good times to be invested.
In short, the ups and downs are part of investing. We each face a choice between stability of values and long term investment returns. There is no way to get both of these things on all of our money, although we may have some of each.
It is important to know where our money will come from, the funds we need in our pocket. For investors, it is also important to know that our long-term portfolios will go up and down.
We mentioned above that the average stock market decline in the course of a year is 13%. Let’s be clear about what that means: a $13,000 drop on a $100,000 portfolio; $65,000 on $500,000; $130,000 on $1 million.
Here’s some solace: by the time you notice we’ve been skewered, we are closer to recovery than when the decline began. One year out of four, on average, the market (measured by the S&P 500) declines. Think about it—three years out of four, on average, it has gone up.
We don’t pull back because we do not want to miss the rebound. Our experience has been that we can live with the ups and downs. It isn’t always easy, but our experience has been that it works out over time.
Clients, if you would like to talk about this or anything else, please email us or call.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
All investing, including stocks, involves risk including loss of principal. No strategy assures success or protects against loss.
All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
The economic forecasts set forth in this material may not develop as predicted.
This is a hypothetical example and is not representative of any specific situation. Your results will vary. The hypothetical rates of return used do not reflect the deduction of fees and charges inherent to investing.
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Play the audio version of this post below:
Why Don't We Just Pull Back? – 228Main.com Presents: The Best of Leibman Financial Services
This text is available at https://www.228Main.com/.
The News About Discomfort
The best clients in the whole world don’t always enjoy the smoothest ride. Clients, I’m not trying to speak for your experience or tell you how you feel… but the ride has been a ride, right?
A core of the households we serve has been with us 17 or more years! The story of our time together can be captured pretty simply, and you’ve heard this before.
“Buy low, sell high” and other classics have become some of our favorite principles: seek the best bargains in the investment universe, own the orchard for the fruit crop, and avoid the stampede.
Our formulations are a little contrarian, but they also aren’t that complicated. So what makes this commentary even worth making? Clients, you know the ride is a ride, and we’ve hung on together. The secret, then, is people hate being uncomfortable.
Buddhist teacher Pema Chödrön explains, “As a species, we should never underestimate our low tolerance for discomfort.” Strengths deepen and develop. Strength begets strength, success compounds. Those forces help us weather the tough times and keep perspective.
We’ll leave you with Chödrön’s take: “To be encouraged to stay with our vulnerability is news that we can use.”
Clients, need a check of perspective? Call or write, anytime.
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Play the audio version of this post below:
The News About Discomfort – 228Main.com Presents: The Best of Leibman Financial Services
Cash on the Sidelines
Time to Get Off the Ride
We’ve all heard the basic maxim of investing: “Buy low, sell high.” And at 228Main.com, we have talked repeatedly about the perils of buying high or selling low. Just last week we asked, “Where are you on the ride?”
It is true that buying high or selling low can easily hurt you, and to avoid acting rashly, you do need to be able to recognize where you might be in a cycle.
The flip side may be true, too: you also need to be able to make timely moves when the time is ripe. Our philosophy focuses on value investing, and we are fortunate enough that you, our clients and readers, have internalized many of these notions. (So you know that we are not talking about “timing the market.”)
So the “buy low” part is relatively easy: hunting for bargains is fun and exciting! It is easy to look at a company trading at depressed prices and imagine the possibilities, even as you know that they may not necessarily come to pass.
The other part—”sell high”—is more difficult. A holding that has treated you well can be hard to get rid of. It is easy to get greedy and let it keep riding in the hopes of further returns.
But what goes up must come down. The more inflated prices get, the less sustainable they are. When prices enter an unsustainable bubble it is wise to protect your gains by selling while the selling is good.
This does not have to be an all-or-nothing process, though. You might still believe in a company’s long-term story even if prices look unrealistically high right now, in the short term. In this case it might make sense to hedge your bets by only selling part of your holdings. This lets you pocket some gains while keeping some exposure in case of future growth.
This becomes especially important when you have a high-flying investment. If certain holdings are outperforming the rest of your portfolio, they may swell up to become oversized relative to the rest of your holdings. Over time you may find yourself with too many of your eggs in one basket; periodically rebalancing away from a hot streak can help spread your risk around.
Of course, there are no guarantees. None of these strategies are magic. But letting your investments ride with a few big winners can leave them vulnerable to a big tanking at even a hint of bad news. Heck even totally decent news can spell a crash for a hot stock that’s being held up by unrealistic growth expectations.
How do we know when it’s time to get off the ride? Clients, when you have questions or concerns about your holdings, please call or email as always.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.
All investing involves risk including loss of principal. No strategy assures success or protects against loss. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
20% – 30% – 40% Off!
Some say the seeds of future gains are planted in the downturns. The future is always uncertain, but the past is not: we know many investments can be owned for less money today than last month or last year.
As we go about our work, we are seeking three kinds of bargains.
- Great companies available at good prices.
- Cyclical companies at low points in their cycle.
- The best bargains in the investment universe, wherever they are.
Often, the companies we most admire seem expensive. We know farmers that are always excited to talk about buying their favorite iconic tractor maker. We hear the same thing from parents about the entertainment conglomerate that makes the movies and runs the theme parks their children enjoy. Downturns sometimes reduce stock prices to attractive levels.
Everyone knows that recessions usually hurt company revenues and profits. We are thinking how the inevitable recovery might improve revenues and profits. That long view improves our appetite for temporarily depressed cyclical companies.
Some of our favorite past bargains have come from the sector politely known as “high yield bonds.” (You and I can use a more descriptive term, junk bonds.) From time to time, at rare intervals over the past twenty years, we have found something we believed to be investable hiding in the junk pile. Times might be ripe for that again.
Now is the time. We are studying and thinking and researching to make the most of it.
Clients, if you would like to talk about this or anything else, please email us or call.
Every Share of Stock is Owned Every Day
Every share of stock in existence is owned every single day by somebody. But the market news often refers to “all the selling on Wall Street” on a down day, or “the buying on Wall Street” on an up day. In reality, every share sold was also bought.
This came to mind when we recently read the words of a supposed expert: “investors need to be protected from themselves.” Since “you can’t change people” then the right prescription is a 60/40 or 40/60 mix of stocks and bonds, because otherwise people would sell out at a bad time – in a down market. But every share sold gets bought! So we cannot all be selling at the same time.
The idea that nearly everyone should give up the potential returns of long term stock ownership on a large fraction of their wealth because they won’t behave properly seems wrong-headed to to us. Our actual experience with you over the years says that many people are either born with good investing instincts, or can be trained to invest effectively.
We believe you can handle the truth. Long term investing requires living with volatility, the ups and downs. This is not appropriate for your short term needs, of course, for which you need stability.
In these times when bonds pay so little, insistence on a significant allocation to a sector where returns are likely to be historically poor for many years seems short-sighted. Particularly when used to shield true long term money from normal stock market action.
Let’s be clear: our philosophy is not for everyone. History suggests that about one year in four, broad stock market averages are likely to go down. If you can’t stand that with some fraction of your wealth, our approach is not the right one for you.
Clients, if you would like to talk about this, or anything else, please email us or call.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.
All investing involves risk including loss of principal. No strategy assures success or protects against loss.
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